Sterling falls on risk sentiment

Good Morning,
Today we’ll have a quick review of where rates moved last week, and then look at what data releases we have this week. As usual, let’s have a quick look at where rates stand…

Exchange Rates as at 08:30am 17th August 2009 :

  • GBP/EUR 1.1567
  • GBP/USD 1.6336
  • GBP/AUD 1.9923
  • GBP/NZD 2.4427
  • GBP/CAD 1.8115
  • GBP/ZAR 13.355
  • GBP/CHF 1.7624

Last Weeks Trading
The main story of last week was the good data from the EU, and a reverse of risk sentiment, both of which caused rates to fall.

French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe’s largest economies. Because markets had expected a 0.3% decline, the surprisingly good results strenghtened the Euro and caused rates to fall.

Sterling eased against the dollar on Friday and fell more than 1% on the day versus a resurgent yen after a report showing U.S. consumer confidence fell in early August dampened demand for riskier assets.

“It does reinforce the view that there’s still a long way to go before you see a sustainable turnaround in sentiment … It just underscores the vulnerability of the recovery so far,” said Samarjit Shankar, director of global strategy at Bank of New York Mellon.

The balance of risk appears to be the key to interpreting the direction of cable (GBP/USD) over the coming months. As I’ve mentioned before, gone are the days of “Traditional Trade” whereby good figures create a strong currency.

The Dollar has been the main Safe haven currency over the past year and has therefore strengthened dramatically as investors run for the relative safety of the dollar and away from equities and riskier currencies such as the pound.

As the recent downturn flattens out and world economies show signs of recovery, those investors who had moved to the Dollar are now pulling out hence the move from 1.35 to 1.70 at the high. Therefore, good news out the U.S. produces Dollar weakness as market confidence returns and people move to equities, commodities, commodity currencies (AUD,NZD,CAD,ZAR) and riskier currencies e.g. GBP.

This is what will cause a risk to the pound this week.

This weeks data
For the UK this week, the main data to look for is Consumer Price Index and Retail Price Index tomorrow, and towards the end of the week we have Retail Sales, Public Sector Borrowing and GDP figures. Tomorrows data will give an idea of inflationary pressures facing the UK economy and therefore where interest rates may move later in the year. The retail sales are measures the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending and as can have a big impact on exchange rates.

GDP figures are important as it will show the pace at which our economy is increasing or decreasing. Last weeks surprise GDP figures from the Eurozone demonstrate the effect this data can have on exchange rates.

A full list of the weeks releases is below, and if you need any further information on how this could affect your particular requirement, please contact us.

Monday
EU – Trade Balance
US – Manufacturing Index
US – Housing Market Index

Tuesday
UK – Consumer Price Index
UK – Retail Price Index
EU – Economic Sentiment
US – Building Permits
US – Producer Price Index

Wednesday
Ger – Producer Price Index
EU – Current Accounts
Can – Consumer Price Index
US – Crude Oil Stocks Change

Thursday
UK – money Supply
UK – Public Sector Borrowing
UK – Retail Sales
US – Jobless Claims

Friday
UK – Gross Domestic Product

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